R.F. Khan developed the concept of the multiplier in 1931 to describe how employment would increase based on an initial increase in investment. John Maynard Keynes later borrowed this idea and formulated the investment multiplier, which establishes a precise relationship between aggregate employment/income and the rate of investment given the propensity to consume. The investment multiplier, K, is the ratio of the change in income to the change in investment, where K equals total income divided by investment. Keynes also showed that the multiplier, K, equals 1 divided by 1 minus the marginal propensity to consume.
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R.F. Khan developed the concept of the multiplier in 1931 to describe how employment would increase based on an initial increase in investment. John Maynard Keynes later borrowed this idea and formulated the investment multiplier, which establishes a precise relationship between aggregate employment/income and the rate of investment given the propensity to consume. The investment multiplier, K, is the ratio of the change in income to the change in investment, where K equals total income divided by investment. Keynes also showed that the multiplier, K, equals 1 divided by 1 minus the marginal propensity to consume.
R.F. Khan developed the concept of the multiplier in 1931 to describe how employment would increase based on an initial increase in investment. John Maynard Keynes later borrowed this idea and formulated the investment multiplier, which establishes a precise relationship between aggregate employment/income and the rate of investment given the propensity to consume. The investment multiplier, K, is the ratio of the change in income to the change in investment, where K equals total income divided by investment. Keynes also showed that the multiplier, K, equals 1 divided by 1 minus the marginal propensity to consume.
Copyright:
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Download as PPT, PDF, TXT or read online from Scribd
R.F. Khan developed the concept of the multiplier in 1931 to describe how employment would increase based on an initial increase in investment. John Maynard Keynes later borrowed this idea and formulated the investment multiplier, which establishes a precise relationship between aggregate employment/income and the rate of investment given the propensity to consume. The investment multiplier, K, is the ratio of the change in income to the change in investment, where K equals total income divided by investment. Keynes also showed that the multiplier, K, equals 1 divided by 1 minus the marginal propensity to consume.
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V R.F.
Khan developed the concept of
multiplier in his article ´¬ ¬
¬ ¬¬
¬ in the economic journal of June 1931. V Khan·s multiplier was the employment multiplier. Keynes borrowed the idea from khan and formulated the investment multiplier. V ccording to Keynes,µ establishes a precise relationship, given the propensity to consume, between aggregate employment & income and the rate of investment. V When there is an increment of investment, income will increase by an amount which is K times the increment of investment i.e., Y=K I V In the words of Hansen, Keynes· investment multiplier is the coefficient relating to an increment of investment to an increment of income, i.e. K= Y/ I V Where Y is income, I is investment, is change (increment or decrement) and K is the multiplier. Y=C +I Y= C+ I Dividing through by Y, we obtain 1= C/ Y+ I/ Y I/ Y=1- C/ Y or Y/ I=1/1- C/ Y where c= C/ Y that is MPC Y/ I=1/1-c K=1/1-c [K= Y/ I] V IF MPC=1/2 & investment=Rs.1000 then k(multiplier will be 2. V ¬here is change in V ¬here is net increase in autonomous investment investment and induced investment is V Consumer goods are absent. available in response to V ¬he marginal propensity to effective demand for consume is constant. them. V Consumption is a function V ¬here are no changes in of current income only. price V ¬here are no time gaps in V ¬he accelerator effect of the multiplier process. consumption on V ¬he new level of investment investment is ignored. is maintained steadily for V ¬here is less than full the completion of the employment level in the multiplier process. economy. V ñeakage are the V Price inflation potential pitfalls from V Net imports the income stream, V Undistributed profits which tend to weaken the multiplier effect of V ¬axation new investment. V Saving V Strong liquidity preference V Purchase of old stocks and securities V Debt cancellation